European shipyards face growing crisis

This past summer Italy’s Fincantieri yard at Monfalcone floated out the largest passenger ship it has ever built, the 141,000gt Royal Princess, but China and Japan have now started construction of similar ships, and cruise ship orders in Europe have been cut in half since the recession. Credit: Fincantieri Platform supply vessels, such as the recently delivered Evita, completed for Norway’s Ugland Offshore by Kleven Maritime, have been a staple for yards in northern Europe but Japanese, Chinese and South Koran yards are now targeting this sector. Credit: Ugland

Assonave, Italy’s National Association of Shiprepairers and Ship Suppliers (Associazione Nazionale dell’Industria Navalmeccanica), met in Rome earlier this year to discuss the state of the world’s shipbuilding industry. A report presented at the meeting showed that the situation remains critical, particularly for European builders and most specifically for Italian builders. Jim Shaw reports.

Last year 32 million compensated gross tonnes (cgt) of ships were ordered worldwide, an 18 per cent decrease over 2010. In the first quarter of this year orders totaled less than 5 million cgt, down nearly 25 per cent on the same period in 2011. If this trend continues 2012 will go down as one of the historical years when demand for newbuildings hit a record low.

According to Assonave the situation has come about for a number of reasons. As a starter, the world financial crisis of the past few years has led to a considerable slowdown in the seaborne trades. At the same time, a high volume of newbuildings entered the market between 2009 and 2011, the result of cheaper prices offered by shipbuilders. This, in turn, led to a general drop in freight rates which has impacted the profitability of many shipowners and hence their ability to order new tonnage. The slowdown in orders has not only been recorded in the general cargo sector but also in the liquid cargo and passenger sectors, including cruise ships. The sole exceptions to this trend has been sophisticated offshore vessels and gas tankers, technologically advanced ships in which Norwegian and South Korean yards have excelled.

Corrado Antonini, Assonave’s chairman, noted that Italian shipbuilding, which is mainly positioned in specialised niche markets, such as cruise ships, has reflected the general trend of the industry. Orders gained last year by Italian builders amounted to approximately 330,000 cgt, much less than the pre-crisis yearly average of 1 million cgt and well below the record high of 2.8 million cgt. Considering that, in the medium term, world demand is not expected to exceed 40 million cgt, and that these volumes will be matched by a production capacity which has already reached 60 million cgt, the extent of the serious overcapacity situation becomes clear. Within the context of Italy’s own heavy reliance on cruise ship construction, in 2011 the cruise sector counted 19.5 million passengers worldwide. This compared to 18.8 million in 2010 or an increase of 3.7 per cent. However, Antonini underlined the fact that, in terms of lower berths (LBs), the ships ordered last year amounted to approximately 23,000 LBs compared to over 24,100 LBs in 2010. Furthermore, when the cruise ship orders for the four pre-crisis years of 2004–2007 are compared to 2008–2011 the numbers of ships ordered was halved: 51 against 21. Also raising alarm for European builders has been Germany’s Aida Cruises, which has ordered two ships from Japan using financial support offered by the Japan Bank for International Cooperation. The cost per berth

for these 3250-passenger vessels will be €140,000, well under the €150,000 per berth charged by Fincantieri for a 3700-passenger ship it is building for Italy’s Costa group.

Other possibilities

Although military construction at European yards has been relatively stable, and a number of export orders won, Assonave raised concern about the continuity of demand from the Italian Navy whose budget, already reduced considerably over the past several years, is to be further cut by recent measures aimed at containing public spending. The gloomy outlook has persuaded Fincantieri, one of Europe’s largest shipbuilders, if not the largest, to look at other possibilities. The most promising is a project called ‘Plasmare’ that would see two prototype sea-borne plants for the treatment of solid municipal waste constructed. The project has been conceived and promoted by Fincantieri through its centre for applied research CETENA (Centre for Advanced Studies into Naval Technologies). Already in an advanced stage of development, the floating platforms to be built under Plasmare would be positioned in a protected coastal area for operation. The first platform would receive solid municipal waste, approximately 400 tonnes a day, and produce usable gas from it. The second platform would carry a gasification system that would use plasma technology to recover energy from the synthesis gas. Because the various technologies required are at different stages of development, a modular approach is being examined for the project. This would see the waste recycling platform built first, followed by the plasma platform. The project is being put forward by Fincantieri as an environmentally-friendly solution to a number of problems regarding waste management but also because of the current shipbuilding market. As a company official noted: “given the current severe crisis in the shipbuilding industry, building the platforms would bring welcome relief and lead to substantial employment opportunities, both in plant construction and operation.”

Dark days for Germany

The situation in northern Europe is just as acute, if not worse. In August, German Chancellor Angela Merkel informed the financially stressed P+S Werften group, which maintains shipyards at Wolgast and Stralsund, that Berlin would no longer consider further financial aid to stave off the company’s insolvency. At a meeting of 1200 workers at the P+S yard in Stralsund, Merkel acknowledged that it was, indeed, a ‘dark day’ for Germany’s shipbuilding industry. Formed only two years ago P+S Werften advertised itself as ‘among the most modern shipyards in the world’ with ‘2000 highly motivated and specialized staff’. However, Ruediger Fuchs, P+S’s chief executive officer, said an insolvency application would now have to be made. This is because the state government of Mecklenburg-Vorpommern has also declined to give further aid. The state’s prime minister, Erwin Sellering, acknowledged that the €152.4 million in financial assistance already promised P+S Werften would not be enough to permit continued operations and that a buyer for the firm should be sought.

The P+S Werften case closely follows that of the J.J. Sietas yard at Hamburg, which is currently working under insolvency laws as it finishes several ships, including the first German-built offshore wind farm installation vessel. The yard’s insolvency receiver, Berthold Brinkmann, said the shipbuilder’s management has been working “flat out to find an investor” but that they have been unable to secure further investment. The yard has been employing up to 700 workers and still has five vessels to be delivered.

Italy’s Fincantieri has launched the new multi-mission frigate Virginio Fasan (F 591) for the Italian Navy but is worried about order cutbacks as the Italian government enacts measures aimed at containing public spending. Credit: Fincantieri Norway’s Ulstein Verft has completed such high-technology offshore ships as the X-Bow platform supply vessel Blue Fighter but other countries are now building the Ulstein-developed X-Bow design, including Brazil and China. Credit: Ulstein

In the meantime, the European Commission has earmarked over €20 million to help 950 workers now out of jobs in Denmark because of the closure of the giant Odense Steel Shipyard at Lindo, once the builder of the world’s largest container ships. Parent company A.P. Møller–Mærsk has gone to Asia for its latest ships, a trend that is also seeing an increased technology transfer take place between Europe and Asia. This has been underlined recently by the delivery of two subsea construction vessels to Norwegian owner Neptune Subsea by China’s Zhejiang Shipbuilding: the first X-Bow ships to be built in China. The X-Bow, developed by Norway’s Ulstein group as a leading-edge design solution for the offshore industry, is also now being built in Brazil.

Asian builders move into higher value markets

Of even greater concern for European builders is the announcement that China has begun construction of a 100,000gt cruise ship as part of its $2.63 billion Southeast China International Shipping Centre project. To be operated by a subsidiary of the Shan Hai Shu Group, a Chinese firm currently maintaining a cruise tourism development partnership with Florida’s Royal Caribbean International, the new 2000-passenger vessel is expected to be delivered by mid-2016. The inauguration of its construction follows the awarding of contracts by Germany’s AIDA Cruises for two 3250-passenger ships to be built in Japan by Mitsubishi Heavy Industries for delivery in 2015 and 2016.

South Korean builders, who recently won contracts to build new military support ships for the British Navy, are also looking at the cruise sector, with Samsung Heavy Industries vice-chairman and CEO Kim Jing-wan stating that his firm “plans to enter the cruise ship market.” In addition, the Philippines may begin building passenger ships after overtaking Germany last year to become the world’s fourth biggest shipbuilder by deadweight tonnage, behind only China, South Korea and Japan.

Yet another problem for European builders is the fact that Asian yards are starting to cut their prices again as the recession in shipbuilding continues, with China’s Penglai Jinglu yard recently offloading two 75,000dwt Panamax bulk carriers for just $23 million each. Asian yards are also begin to build more technologically-advanced ships in order to gain better profit margins. After issuing a profit warning in August, Hong Kong-listed Rongsheng Heavy Industries, builder of the world’s largest bulk carriers and ranked as the world’s third largest shipbuilder, issued a statement noting that it was turning to higher quality tonnage. “In view of lower prices for new vessels and deterioration in payment terms,” it announced, “China’s shipbuilding sector is in desperate need to shift towards the development of high-margin products.” Accordingly, Rongsheng has set its sights on the deepwater oil and gas sector, where northern European yards have long dominated, and has already set up a new sales office in Singapore targeting the industry. n

A ‘Dark Day’ for Germany’s shipbuilding industry as workers at financially stressed P+S Werften, a major European shipbuilder, hear that there will be no further government aid. Credit: P+S European builders continue to launch ships but orders are dwindling, forcing a new focus on products that can be built in shipyards, including sea-borne waste treatment plants. Credit: Fincantieri